Economic globalization is the increase in inter-country dependence of the world economies which can be attributed to the growth of the trade between countries in terms of service provision and commodity exchange with the help of advancement in technologies (Edward Elgar 2012 Pg. 2). It reflects on the growth of new markets which has an irreversible trend in economic development all over the world which is necessitated by the availability of market and production know-how which are a major force in economic globalization.
Beliefs in economic globalization
According to Williamson, economic globalization uses prescript policies which are considered vital by most economists. For instance, the goal of any economic growth is to keep low inflation rates which has major impacts on investment and saving. Again a nation strives to achieve a more realistic exchange rate with other nations while maintaining a positive balance in current accounts similar to individual households (Horowitz, 2004 Pg. 1). However, there are other global rules and regulation that are spearheaded by ideological facts rather than the set economic standards which conflict the people's beliefs such as the church and other human activists for example wealth accumulation.
One of the provisions of the economic globalization provides that a nation should open her financial markets while at the same time control the flow of capital within the country. However, it can be attributed as a belief among the supporters of the ideology who thinks that a control of the liquid flow in and out of the nation rises foreign investment and minimizes poverty while promoting country’s economic growth. Although deregulating liquidity flow improves economic growth, it puts the country economic status at risk of losing value in exchange risk up to a point of making the poor more poorer which forces the country to seek financial assistance from the world financial institution such as the world bank.
Neoliberalism
It attempts to modernize the independent thoughts and economic policies after the world wars through conceptualizing the world market. The market in this case do not arise naturally and hence are modeled through government interventions which regulates competition while upholding patent rights. Therefore, the government has an active role in ensuring market dynamism work in achieving economic growth. In a political perspective, neoliberalism is channeled towards the specific historical background and power aspects (Harvey, 2005 Pg. 1).
Economists all over the world have argued about the nature of neoliberalism in the context of economic globalization, financialization and the increased inequality which have been labeled as the key drivers of the economy. Though neoliberalism has impacted countries differently, it can be based on the political nature which has proceeded it at a relatively high level, Keynes theory of economic postulates a detailed analysis if its impacts to the economy. Keynesian theory has since put financialization as the key driver of economic growth, it can, therefore, put a suitable proof in discussing the impact of neoliberalism in economic development.
Key aspects identified in the proliferation of the global neoliberalism are privatization and also the diminishing of the social welfare state is not primarily stimulated by neoliberalism. This, however, diminishes discussion which links neoliberalism with the policy-making all over the world. Nonetheless, though many governments are yet to affirm to neoliberal domestic ideas, there still influences of neoliberalism in the manner in which they set their foreign and trade policy. However, arguments against these policies have been raised and have led to the International Financial Institutions removing some of the trade barriers and capital regulation policies with an aim of liberalizing global economy (Smith 2012 Pg. 1).
Over the past two decades, there has been attempts by the governments to reduce trade barriers including tariffs and quotas which has led to a rise in trade levels and has contributed heavily on the increase on the world’s GDP as well as the general output which is attributable to the efforts made by the World Trade Organization and the IMF (international bodies which have significance influence on international trade). Nevertheless, in a historical angle minimization of the protectionist measures have been attributed as the result but not the cause of the increasing international trade.
This has led to increasing trade activity subsequently over the years which indeed can be attributed to the massive growth of economic globalization. Despite the fact that there still exist trade barriers in agriculture and textile industries, it cannot be perceived as a 100% shifts towards the de-regulated economy since there has been a notable decrease in production and transportation cost of goods over the years and has necessitated a consisted flow of goods. Moreover, the existence of trade policies can be associated with the theory of neoliberalism which emphasize more towards achieving economic efficiency arising from trade gains linked to the comparative advantage.
Financialisation
Financialisation can be defined in two broad categories. The first one explains that financialization is related to the growth and expansion of financial sector (bank deposits and stock market) and their related operation. Upon that, it has proceeded through several challenges for quite a long period of time. On another perspective, financialization is viewed as a period of time of capital evolution dating back in 1980 which split between two aspects, that is, financial economic and capital divergent (Dymski 2015 Pg. 34). On another aspect, it can be attributed to profit accumulation via financial institution rather than from trade activities.
Over the years, economists have analyzed its features in several aspects:
First, it can be referred to the broad expansion and proficiency of financial market over the last three decades.
Again, financialization involves a series of processes which can be closely inter-linked with financial system de-regulation and general economic development.
It can be perceived as the success of the financial institution and the market which are the main pillars of trade.
In a structured level, it can be explained via financial dominance over the existing industrial level.
Financialisation can be heavily linked with the financial market mechanization which is empowered and also complimented through policies put in place by the government which undermines increasing income inequality.
Although households consumption has often been maintained by supplementation of credit, it is however not the least use of gains as a source of housing collateral.
Financialisation does not limit only to the increase of existing financial market but rather also the probing of financial funding in a wide range of both social and economic production such as health, education, and housing.
Financialisation can be studied and interpreted through several disciplines, for instance; political economic, general economic or even in a geographic perspective. Though it might not make the cut in the financial literature, their series of discussion existing about financial growth and its deviant which can be attributed to the much work done towards realizing financial development.
Edward Elgar (2012 Pg. 3) postulates the reason why the emergence of new financial institution implicates to the growth of the economy. Analysis at the industrial level, firm level, and individual level have affirmed that there is a positive functioning existing between financial development and economic development.
Again, in the micro-economic based study, it is evident that there exists consistency in growth for both the financial sector and the market which has helped relieve external financial challenges facing the industries and illuminates to a single mechanism upon which financial development influences growth in the economy.
The interaction between MNC and their host countries
Multinational Corporations are investments bodies that operate in countries other than their parent nations. They are very influential in the economic growth of the host countries since they offer massive employment and bring about industrialization. However, if their actions are not regulated, they may adversely affect the host country.
Benefits of MNCs
The MNCs bring multiple merits to the host countries. For example, they diversify trade and yield foreign exchange for the host countries (Pettinger 2017Pg. 1). Since most of these firms are large, they enjoy economies of scale. Moreover, they invest in research and development. Therefore, their activities help both their home countries and host countries. Their products are also globally available; this ensures they maintain their clientele whenever they visit (Pettinger 2017 Pg. 1). Moreover, the products are trusted since they are available universally.
The Reasons for Regulating the Activities of MNCs
The MNCs have a fair share of demerits both to their parent and host nations. The enterprises are known to be monopolistic. They exploit consumers in their bid to fetch more profits. Consequently, they amass a lot of profits (Pettinger 2017 Pg. 2). For example, in 2016, Shell Company earned a profit of £14billion.
Moreover, the firms also evade payments of taxes. They strategize their operations to fit in nations which charge the lowest tax rates. Therefore, most of the MNCs are situated in nations like Bermuda, Ireland, and Luxemburg. The unethical behavior has been observed in Google Company which in 2011 paid a tax of £3.4 million which was just 00.1% of its sales in the United Kingdom (Pettinger 2017 Pg. 1). The firms also hoard their resources overseas and fail to invest. The net effect is welfare reduction since the reserves do not benefit any economy.
One of the advantages of the MNC is economies of scale. However, the efficiency in production tends to push small businesses out of the market since their goods are cheaper than the small firms. The MNCs are also involved in pollution activities since their main objective is profit maximization (Pettinger 2017 Pg. 1). Moreover, the firms pay low wages to their employees. These misdemeanor activities necessitate government to regulate the operations of the MNCs.
Methods of Regulating the Practices of MNCs
MNCs are responsible for Foreign Domestic Inflows (FDI) into their host countries. Therefore, they transfer resources from their home country and invest it elsewhere. The role of governments in these transactions cannot be underestimated (Management Study Guide. 2018 Pg.1). The administration enforces laws which either encourage or discourage FDI. The host countries have a pivotal impact on the activities of MNCs. The governments enact fiscal and regulatory reforms which discourage the foreign investors.
The MNCs enable the emerging economies to feature in the international markets. Thus, the governments introduce subsidies and enhance how the MNCs can access the markets. They also hold dialogue with foreign administrations to increase inter-trade opportunities (Bazuchi 2013 Pg.1). The governments can also occupy positions in the MNCs as a way of fostering their success.
On the other hand, the home countries influence the activities in various ways. The political environment in the nation may enable Domestic MNC function better than foreign MNCs (Bazuchi 2013 Pg. 1). However, the domestic MNCs may be forced to invest in other countries in case the home country raise taxes.
The MNCs tend to apply survival tactics to survive in the industry. They sometimes form alliances with other companies to diversify the risks. They can also fight for support from the governments through better industrialization mechanism or bribery (Bazuchi 2013 Pg. 1). Nevertheless, the leaders will have to make choice between accepting the MNCs or not. The government can utilize other tools to inhibit operations of MNCs. Some of these instruments include antitrust legislation, increasing taxes and direct purchase (Bazuchi 2013 Pg 1). These act as disincentives to investments.
There have been recent campaigns against MNC by many political leaders. The United Kingdom, as an example, has agreed to initiate the Brexit policy. The regulation will inhibit the MNCs from the UK from traversing to other economies (MSG n.d Pg. 1). The USA, on its side, has also advocated for protectionist policies. The policies campaign against consuming foreign products or employing foreign companies (MSG n.d Pg 1). The change of political climate may reduce the prominence if the MNCs. Moreover, the electorates in Holland voted in personalities who were advocated for protectionism. Therefore, the changes in public opinions will likely drive MNCs out of operations.
Conclusion
The MNC is dualistic in nature. They operate in countries other than their origin and maintain their original status. Their activities are therefore governed by the host as well as the home country. The firms are advantageous to both their home country and the host country. However, to increase their success or mitigate their demerits, the governments take an active role in regulating their operations. The policies are either towards globalization or protectionist. The effectiveness of the policies depends on the size of the economy or that of the MNCs. The study of the interaction of the MNCs and the administration is essential to determine the implications of government actions on the roles of MNCs.
References
Bazuchi, A., Zacharias, S…. " Mello, R. (2013). The role of home country political resources for Brazilian multinational companies. Available at http://www.scielo.br/scielo.php?script=sci_arttext"pid=S1807-76922013000400004
Accessed 25th April 2018
Dymski G.A., (2015). The Bank Merger Wave: The Economic Causes and Social Consequences
Edward Elgar, 2012. Epstein, G. (ed.) 2005. Financialization and the World Economy. Cheltenham and Northampton: Edward Elgar
Harvey, D. A. (2005), Short History of Neoliberalism. Oxford: Oxford University Press.
Horowitz, S. (2004). Restarting Globalization after World War II; Structure, Coalitions, and the Cold War.Comparative Political Studies
Management Study Guide. (2018). Multinational Companies (MNCs) in the Era of Protectionism. Available at https://intranet.birmingham.ac.uk/as/libraryservices/library/referencing/icite/documents/public/Harvard-Referencing-Quick-Guide-(PDF---197KB)-2.pdf Accessed 25th April 2018. of Financial Consolidation, M.E. Sharpe, New York 1999.
Pettinger T. (2017). Multinational Corporations: Good or Bad? Available at https://www.economicshelp.org/blog/538/economics/multinational-corporations-good-or-bad/ Accessed 25th April 2018.
Smith, C. (2012), ‘A Brief Examination of Neoliberalism and Its Consequences’, Sociology Lens, Online, available at http://thesocietypages.org/sociologylens/2012/10/02/a-brief-examination-of-neoliberalism-and-its-consequences.
